Wholesale inventories, sales support growth

Wholesale inventories rose in January and sales set their fastest pace in 14 months, suggesting restocking and strong demand would give a lift to the economy in the first quarter.

Total wholesale inventories increased 1.1 percent to $436.88 billion, the highest level since November 2008, the Commerce Department said on Wednesday. It said inventories rose an upwardly revised 1.3 percent in December.

At the same time, sales at the wholesale level jumped 3.4 percent, the largest gain since November 2009, and December's increase was revised higher as well.

A slowing pace of inventory accumulation had weighed on U.S. economic growth in the fourth quarter, but a need to restock shelves should now help spur more production. The rise in inventories also offers a signal that businesses expect further sales growth ahead.

Economists, who had expected inventories to rise 0.8 percent and sales to gain only 0.5 percent, said high petroleum prices might have contributed to the above-forecast reading, which is not adjusted for inflation.

Still, the data suggested the economy's growth prospects were solid even though harsh winter weather held back the recovery at the start of the year.

It does suggest the nominal economy into the first quarter was posting some pretty solid growth, said Mike Englund, chief economist at Action Economics in Boulder, Colorado. Whereas before people might have seen some downside risk to GDP in the first quarter, we think the risk is now back to the high side.

Given the upward adjustment to December's wholesale inventories reading, economists said the government would likely revise up its measure of fourth-quarter GDP growth to a near 3.2 percent annual rate from the 2.8 percent reported last month.

The Commerce Department will publish its final estimate for fourth-quarter gross domestic product on March 25.

January's trade data scheduled for release on Thursday and a report on Friday on overall business inventories, which includes retail stocks, will shed more light on the size of the potential revision to fourth-quarter GDP growth, as well as the outlook for the current quarter.

The surge in crude oil prices is expected to have pushed up overall U.S. imports in January, slightly widening the trade deficit to $41.5 billion from a gap of $40.6 billion in December, but the report on GDP is adjusted for price impacts.

In January, the rise in wholesale inventories was almost across the board, with petroleum stocks posting their largest increase since March. Sales were in part boosted by a 10.6 percent jump in petroleum, the biggest gain since November 2007.

With sales setting a fresh 3-1/2 year high, the inventory-to-sales ratio -- a measure of how long it would take to sell off stockpiles at the current sales pace -- fell back to an all-time low of 1.13 months' worth from 1.15 in December.

If the declines in the ratio continue, it will be good news for industrial production over the next few months as firms work to keep pace with demand, said Michael Brown, an economist at Wells Fargo in Charlotte, North Carolina.